chess
© Pixabay / FelixMittermeier
Riyadh's actions in the oil market could be a grave miscalculation and will definitely backfire, but they will not make Moscow dance to its tune, analysts have told RT.

Crude oil prices suffered the biggest one-day fall since 1991 on Monday after top oil producers failed to agree on new output cuts and Saudi Arabia decided to boost production and offer discounts. Such an upheaval inflicts pain not only on Russia and Saudi Arabia, but also on all the members of the Organization of the Petroleum Exporting Countries (OPEC). However, Riyadh is clearly going to lose this price war, says Eike Hamer, political commentator and publisher of the Wirtschaft Aktuell newsletter.

"[The Saudis] are playing a very dangerous poker game, and they're playing it against a chess player. But they don't have a good hand. But the chess player has a very good hand and the chess player is Russia," he said in an interview with RT.

Despite both Russia and Saudi Arabia being reliant on oil, Moscow has much more room for maneuver due to its vast gold reserves and its budget policy in recent years aimed at cutting the nation's dependence on energy exports. On the other hand, Saudi Arabia has a running budget deficit of over $50 billion and has limited funds abroad.

While both players can sustain low oil prices for some time, Riyadh cannot afford to be in this situation for long, with some analysts noting that it can only stay afloat for a year or two. The Russian finance ministry said that the country can stay afloat for up to 10 years, even if oil prices stay between $25 and $30 per barrel.

"It seems like a death spiral downward to see who is gonna blink first," said Oil Associates LLC President Andrew Lipow. "But a Brent price of 40 dollars a barrel means that Saudi Arabia burns through about 120 billion dollars a year. So I think they almost play a game of chicken between themselves and the rest of the oil market."

"Russia can probably sustain this for longer than Saudi Arabia," Research Director at NXTanalytic Alessandro Bruno told RT. "It's truly mind-boggling what the crown prince [Mohammed] bin Salman decided. Because by lowering prices he also lowers Saudi Arabia's budget capabilities."

Oil market turbulence will still have an impact on Russia, as well as on other oil producing nations of OPEC. Saudi Arabia's oil price war could also have a surprising target: Iran, the kingdom's regional rival. Bruno noted that the Islamic Republic has been severely hit by the coronavirus epidemic and needs stable budget revenues.

"They think they're putting pressure on Russia. But they're also putting a lot of pressure on Iran," Bruno said. "The Iranian economy is far more diversified than the Saudi one, but that would be more the target than Russia."

Oil prices will rebound in several months - Russian energy minister

It will take the oil market several months to recover from the current turbulence, Russian Energy Minister Alexander Novak said on Tuesday, adding that plummeting oil prices were not a surprise for Russia.

"This scenario was expected and calculated," he told Rossiya-24 channel the day after a 30 percent drop in crude prices. On Tuesday, oil gained around 8 percent - a good signal that some panic sentiments have already vanished, the minister believes.

The recovery of oil prices will depend on a wide range of factors, primarily on how the governments will contain the coronavirus outbreak as the epidemic has an impact on demand and consumption of oil, according to Novak. Apart from softening the demand for energy, he says Covid-19 took a toll on the economic growth of many countries and global GDP, forcing central banks to come up with stimulus measures.

"That will largely depend on how the economy recovers as a result of neutralizing the situation in this regard," Novak added.

While Saudi Aramco is set to ramp up production next month from around 9.8 million barrels per day to 12.3 million barrels a day, Russia is also not sitting idle. Novak says that the country can increase output by between 200,000 and 300,000 barrels per day in the short-term perspective, and can potentially further ramp up production by 500,000 barrels per day. Given that Russia's output is believed to be 11.38 million barrels a day, the nation's total daily production may reach 11.8 million barrels after the hike.

Despite the collapse of last week's talks, Moscow doesn't rule out further cooperation with OPEC and allied oil producers. However, Riyadh might not be so eager to return to the negotiating table.

"I fail to see the wisdom for holding meetings in May-June. That would only demonstrate our failure in attending to what we should have done in a crisis like this and taking the necessary measures," Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman told Reuters.

Russian stock markets catch up to global equity losses after oil price crash

Russia's main index on the Moscow Exchange opened almost 10 percent lower after the long weekend holiday on Tuesday, before recovering most of its losses during the afternoon trade, but still down about four percent.

Russian stock exchanges were closed Monday for a public holiday and are now catching up with global markets, which posted their steepest falls since the 2008 financial crisis to start the week after oil prices crashed over the weekend.

The main MOEX Index was down around four percent by 2:00pm local time, according to data of the Moscow Exchange. The RTS dollar index was down about eight percent.

The Russian currency rebounded slightly after collapsing nearly eight percent versus the US dollar on Monday, currently trading above 72 rubles against the greenback and 82 against the euro.

The head of the Central Bank of Russia (CBR) says there are no immediate problems with the liquidity on the market. CBR's First Deputy Governor Kseniya Yudayeva announced on Tuesday that the regulator has a wide range of measures previously tested and will continue to analyze the situation.

Crude prices bounced back about nine percent on Tuesday from the biggest one-day rout in nearly 30 years, as investors eye the possibility of economic stimulus. Benchmark Brent rose to above $37 a barrel, while US West Texas Intermediate (WTI) crude was trading at around $34 a barrel.